Whatever may be said of insolvency, it is an unfortunate outcome that businesses and individuals alike can often suffer. The simple test for insolvency [whether as a company or an individual] is whether or not you are able to meet your debts as and when they fall due. If the simple answer is “no”, then one of the required grounds has been met and insolvency proceedings may follow.
When devising a business plan and a corporate strategy, the last thing that anyone ever strives to “achieve” is a form of insolvency. Despite this, it is a regrettable part of being successful in business (some of the world’s greatest business people have been bankrupt or associated with dissolved businesses). An unknown or unexpected event can often have a huge and detrimental effect of a business (and that in turn can have a knock on effect to other businesses).
Insolvency isn’t one set form. There are many varieties. However, the simplest test that a business can do is to “stress test” and see whether or not you are able to meet your debts as and when they fall due. If the simple answer is “no”, then one of the required grounds has been met. That “no” may be sufficient to evidence that some form of Insolvency Proceedings may follow.
As stated above, there are many forms to Insolvency. There are the steps taken by Creditors who are owed money. There are the steps taken by Companies and individuals to restructure payments and outgoings in order to ensure that Creditors get paid and there are those who take the appropriate steps to stave off any form of insolvency action being taken against them.
As a Company Director, you have a fiduciary duty to ensure that your Company is able to meet its debts as and when they fall due. In circumstances where you identify that there is a financial issue with your business, it is important to ensure that the correct steps are taken at the right time as this may well lead to your business being saved. An inability to manage and/or maintain your Company’s financial obligations may well place your business into a detrimental position that may lead to only one result.
Where it is possible to avoid this from occurring, we will do all we can to assist, whether that is to put you in touch with one of the Insolvency Practitioners we work closely with or having a ‘group adviser meeting’ with an IP and your own accountant to see if we can work out a way to prevent the worst from happening to the business you have spent so long establishing. At the very least, we will speak with your Creditors and see if we can negotiate a suitable and importantly, workable arrangement to help you stave off the worst from occurring. At Southall Hathaway & Co. we recommend being pro-active as opposed to re-active in these circumstances.
We also act on behalf of Insolvency Practitioners [who owe a statutory obligation to Creditors] in order to recover monies and/or assets belonging to Companies in order to allow realisation for the benefit of Creditors. Those actions may result in Statutory Demands being presented or a Winding Up Petition being issued with further enforcement action then being taken and sometimes even the corporate veil being pierced and the (former) Director(s) being personally liable for the losses.
Our Insolvency work includes:
- Acting for Trustees in Bankruptcy;
- Representing Liquidators for recovery of outstanding Directors Loan Accounts;
- Representing Liquidators against former Directors for wrongful trading / transactions under value and disposals designed to put assets outside the reach of Creditors
- Presentation of Statutory Demands
- Presentation of Winding Up Petitions [Companies] and Bankruptcy Petitions [Individuals];
- Attendance and advocacy at hearings in opposition to Statutory Demands, Winding Up Petitions and Bankruptcy Petitions.
- Representing Administrators;
- Company restoration.
Our lawyers provide a full service to individuals, Companies and Insolvency Practitioners.
In circumstances where a Creditor is owed a debt by an individual, on the premise that the liability owed meets the Statutory threshold of £5000.00, then as an alternative to pursuing Court proceedings, a Creditor may issue a Statutory Demand.
A statutory demand should not be used as a means of Debt Recovery [indeed, it may well be construed as an abuse of process to do so]. However, in circumstances where all other resolution means have failed, then the Demand may be presented.
There are very strict rules relating to the presentation of a Statutory Demand. Those rules are as follows:
- The debt owed must be over the statutory threshold of £5000.00;
- It must be a genuine debt owed [it should not make a claim for interest or compensation in order to ensure that the statutory threshold is met] and
- The debt is undisputed.
To ensure that a Statutory Demand is properly served [i.e. received by the recipient Debtor], then it should be personally served by a Process Server who will then provide a sworn Witness Statement verified by a Statement of Truth.
Once a Statutory Demand has been served, the Creditor must wait the statutory time period before taking any further steps (such as proceeding with the presentation of a Bankruptcy Petition). This is because a Debtor is permitted a defined number of days to pay the demanded liability in full or to proceed with making a formal application to their local Court to have the Statutory Demand set aside.
It is only upon the Debtor failing to do either, within the prescribed time frame permitted, that the Creditor may proceed with the presentation of a Bankruptcy Petition.
Although a formal document, there is no requirement for a Creditor to have the same presented to the Court before it is served on the Debtor. The obligation vests with the Debtor to make the application to Court to set it aside. The rules regarding the setting aside of a Statutory Demand are very strict and so, the making of the application should only be utilised in circumstances where the Debtor can satisfy one or more of the rules. Should an application be made and is subsequently determined to have little merit or is unsuccessful, then in circumstances where costs are awarded [and predominately, the usual rules relating to costs will apply] then the liability owed to the Creditor may well increase.
Being declared Bankrupt is usually the subsequent step an individual debtor faces following the inability to
settle the principle demanded sum or alternatively, an ineffective challenge to set aside the Statutory Demand.
Following the presentation of a Bankruptcy Petition, a bankruptcy hearing will be held. During the terms of this hearing, in order to make the Bankruptcy Order, the Court needs to be satisfied that the statutory requirements have been met [specifically that the demanded sum is above the statutory threshold of £5000.00 and that there is an inability to pay such monies]. In circumstances where those requirements have been met, unless there is a significant and non-prejudicial reason to Creditors to not do so, the Court will make a Bankruptcy Order.
Once an Order has been made, you will be bankrupt for 1 year. This can be extended.
During the period of bankruptcy and as a Bankrupt, you should not try to secure Credit [from £50.00 upwards] and certainly not without first advising the Credit Agency that you are an undischarged Bankrupt.
In circumstances where you have assets [that are not in negative equity status], then it is likely that the Official Receiver or a Trustee in Bankruptcy will be appointed to manage your financial affairs for the benefit of the Creditors. The management of your assets may well result in your property (if you owned one) being sold.
This procedure is a step undertaken (in the main) by the Directors and Shareholders of the business in circumstances where they have identified that the business is getting to the stage where it is unable to meet its debts as and when they fall due [or alternatively, is reaching a stage where it is unlikely to be able to meet its debts as and when they fall due] and so, pursuant to their fiduciary duties, take the steps to voluntarily wind the business up.
This is a process that should be utilised by experienced legal practitioners and Insolvency Practitioners. ehl Commercial Law with its close ties to Insolvency Practitioners is able to assist Directors when this scenario arises.
This is more commonly known as “Winding Up”. It usually occurs where a Creditor has made a formal demand for payment of outstanding and undisputed monies and the Company has been unable to pay the demand [either within the time frame permitted or at all].
Once a Winding Up Petition has been presented at Court, a hearing will occur some weeks later and the Court will make a determination as to whether or not it is just and equitable to order the formal liquidation of the debtor company. Once that order has been made, the matter will be passed to the Official Receiver in the first instance and possibly thereafter a Liquidator.
This is usually a step taken by a Director or Shareholder who has identified that the Company is in financial difficulty but has the potential to “trade through” and so, as opposed to simply placing the Company into liquidation, the Directors and/or Shareholders take the step to appoint an Administrator.
The job of the administrator is to assist the business [insofar as it is practicable to do so] in surviving its ‘rough patch’ thereby enabling either the business survival or achieving a better return for Creditors.